Small- and medium-sized businesses (SMBs) account for over 95% of firms in the UK yet they have historically been chronically underserved by financial services providers.

While some banks, like HSBC and Barclays, have started boosting their offerings for SMBs, new research from Strands shows that significant gaps between what legacy banks offer and what SMBs want and need still exist.

Here the key points from the research:

SMBs don't feel they have a personal relationship with their bank.Sixty-eight percent of surveyed SMBs said they see their banks as utility providers, with only 8% saying they viewed their bank as a business partner, and 24% remaining unsure. That's likely because, so far, new SMB offerings from banks are mainly digitized versions of existing products. That can make accessing existing products easier but it doesn't help with establishing a more personal relationship between bank and customer. That's a problem because personalization is something valued highly by SMBs. In fact, 40% percent of SMBs said a lack of personalization in products and services would make them switch to a new bank.

Banks are aware they face significant competition.Eighty-three percent of banks said their SMB clients were likely to open an account with an SMB-focused challenger bank such as Tide, compared to 50% who thought the same clients would turn to a traditional provider. That indicates that more banks perceive challenger banks as a threat. In turn, that's likely because firms like Tide tailor their services specifically to SMBs and offer them a wider range of services than just bank accounts, such as helping with expenses management.

Banks need to elevate their game if they want to hold onto their SMB clients. Amid ever-increasing competition, banks will struggle to stay relevant in the SMB market if they don't increase their efforts to improve their relationships with their clients. That said, developing new, personalized services from scratch might be difficult to do in a timely fashion as most banks have a wider range of priorities than just serving SMBs. Instead, we will likely see more banks partnering with fintechs and looking to startups as technology providers as they work to keep their SMB customers happy.

Fintechs have found a way to serve small- and medium-sized businesses (SMBs) while still making a profit, and now incumbents want in on the action.

SMBs have been historically underserved by financial services providers, but that's starting to change as both fintechs and incumbents continue to roll out SMB-targeted services.

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